SINGLE
AUDIT OF THE
COMMONWEALTH OF PUERTO RICO
DEPARTMENT OF THE FAMILY
FOR THE FISCAL YEAR ENDED
JUNE 30, 2003

March
2007

A-77-07-00010

MANAGEMENT
ADVISORY REPORT

Mission

By conducting independent and objective audits, evaluations and investigations,
we inspire public confidence in the integrity and security of SSA's programs
and operations and protect them against fraud, waste and abuse. We provide timely,
useful and reliable information and advice to Administration officials, Congress
and the public.

Authority

The Inspector General Act created independent audit and investigative units,
called the Office of Inspector General (OIG). The mission of the OIG, as spelled
out in the Act, is to:

Conduct and supervise independent and objective audits and investigations
relating to agency programs and operations.
Promote economy, effectiveness, and efficiency within the agency.
Prevent and detect fraud, waste, and abuse in agency programs and operations.
Review and make recommendations regarding existing and proposed legislation
and regulations relating to agency programs and operations.
Keep the agency head and the Congress fully and currently informed of problems
in agency programs and operations.

To ensure objectivity, the IG Act empowers the IG with:

Independence to determine what reviews to perform.
Access to all information necessary for the reviews.
Authority to publish findings and recommendations based on the reviews.

Vision

We strive for continual improvement in SSA's programs, operations and management
by proactively seeking new ways to prevent and deter fraud, waste and abuse.
We commit to integrity and excellence by supporting an environment that provides
a valuable public service while encouraging employee development and retention
and fostering diversity and innovation.

MEMORANDUM

Date: March 30, 2007

To: Candace Skurnik
Director Audit Management and Liaison Staff

From: Inspector General

Subject: Management Advisory Report: Single Audit of the Commonwealth of Puerto
Rico, Department of the Family, for the Fiscal Year Ended June 30, 2003 (A-77-07-00010)

This report presents the Social Security Administration's (SSA) portion of
the single audit of the Commonwealth of Puerto Rico, Department of the Family
(DoF), for the Fiscal Year ended June 30, 2003. Our objective was to report
internal control weaknesses, noncompliance issues, and unallowable costs identified
in the single audit to SSA for resolution action.

Ernst & Young LLP performed the audit. The Department of Health and Human
Services (HHS) desk review concluded that the audit met Federal requirements.
In reporting the results of the single audit, we relied entirely on the internal
control and compliance work performed by Ernst & Young and the reviews performed
by HHS. We conducted our review in accordance with the Quality Standards for
Inspections issued by the President's Council on Integrity and Efficiency.

For single audit purposes, the Office of Management and Budget assigns Federal
programs a Catalog of Federal Domestic Assistance (CFDA) number. SSA's Disability
Insurance (DI) and Supplemental Security Income (SSI) programs are identified
by CFDA number 96. SSA is responsible for resolving single audit findings reported
under this CFDA number.

1. Accurate inventory records for acquisitions and physical location of property
purchased with Federal funds were not maintained (Attachment A, pages 1 and
2). The corrective action plan indicated that an inventory control software
program has been acquired and two employees have been assigned responsibility
for inventory control (Attachment A, page 2).

The Office of the Inspector General (OIG) conducted an audit of Administrative
Costs Claimed by the Puerto Rico DDS that covered the same time period as this
single audit. The OIG audit identified that the maintenance of inventory did
not comply with SSA's Program Operations Manual System and recommended corrective
action. Therefore, we are not making a recommendation related to this single
audit finding.

The OIG's audit reviewed disbursements based on a statistician's approved plan
and found them to be supported by documentation. However, we believe a recommendation
on this finding is warranted since the disbursements reviewed as part of this
single audit are most likely different than the disbursements reviewed by the
OIG.

3. Documentation to support payroll expenditures could not be located for four
employees. In addition, payroll costs were charged to the incorrect account
for two employees (Attachment A, pages 5 and 6). The corrective action plan
indicated that a plan was developed by the Human Resources Department to address
this finding (Attachment A, page 6).

The OIG's audit reviewed payroll costs claimed by the Puerto Rico DDS based
on a statistician's approved plan and found the expenditures to be allowable
and adequately supported. However, we believe a recommendation on this finding
is warranted since the payroll expenditures reviewed as part of this single
audit are most likely different than those reviewed by the OIG.

4. Information reported on the State Agency Report of Obligations for SSA
Disability Programs (SSA-4513) did not reconcile with the DoF's records. Specifically,
amounts reported on 11 SSA-4513 reports differed from DoF's accounting records.
In addition, for 1 quarter, an incorrect indirect cost rate was included in
the report, resulting in questioned cost of $662,771 (Attachment A, pages 7
and 8). The DoF did not agree with this finding and stated that the reports
were prepared accurately and timely (Attachment A, page 8).

The OIG's Administrative Cost Audit included SSA-4513 reconciliations of costs
claimed by the Puerto Rico DDS and did not identify any problems. Furthermore,
the OIG audit determined that the indirect costs claimed by the Puerto Rico
DDS were allowable. Therefore, we are not making a recommendation related to
this single audit finding.

We recommend SSA:

1. Determine if the $207,302 charged to SSA was for allowable expenditures
and collect any unallowable costs.

2. Remind the DDS to maintain adequate documentation to support expenditures
and payroll costs charged to SSA programs.

3. Determine if unallowable payroll costs were charged to SSA and collect any
unallowable costs.

The single audit also disclosed the following findings that may impact DDS
operations although they were not specifically identified to SSA. Some of these
findings were reported for several DoF programs indicating pervasive problems
within DoF. If the finding was reported in more than one DoF program, we identify
the number of times the finding was reported in parenthesis and only attached
one finding as an example. I am bringing these matters to your attention as
they represent potentially serious service delivery and financial control problems
for the Agency.

Please send copies of the final Audit Clearance Document to Shannon Agee and
Rona Lawson. If you have any questions contact Shannon Agee at (816) 936 5590.

Patrick P. O'Carroll, Jr.

Overview of the Office of the Inspector General
The Office of the Inspector General (OIG) is comprised of our Office of Investigations
(OI), Office of Audit (OA), Office of the Chief Counsel to the Inspector General
(OCCIG), and Office of Resource Management (ORM). To ensure compliance with
policies and procedures, internal controls, and professional standards, we also
have a comprehensive Professional Responsibility and Quality Assurance program.

Office of Audit
OA conducts and/or supervises financial and performance audits of the Social
Security Administration's (SSA) programs and operations and makes recommendations
to ensure program objectives are achieved effectively and efficiently. Financial
audits assess whether SSA's financial statements fairly present SSA's financial
position, results of operations, and cash flow. Performance audits review the
economy, efficiency, and effectiveness of SSA's programs and operations. OA
also conducts short-term management and program evaluations and projects on
issues of concern to SSA, Congress, and the general public.

Office of Investigations
OI conducts and coordinates investigative activity related to fraud, waste,
abuse, and mismanagement in SSA programs and operations. This includes wrongdoing
by applicants, beneficiaries, contractors, third parties, or SSA employees performing
their official duties. This office serves as OIG liaison to the Department of
Justice on all matters relating to the investigations of SSA programs and personnel.
OI also conducts joint investigations with other Federal, State, and local law
enforcement agencies.

Office of the Chief Counsel to the Inspector General
OCCIG provides independent legal advice and counsel to the IG on various matters,
including statutes, regulations, legislation, and policy directives. OCCIG also
advises the IG on investigative procedures and techniques, as well as on legal
implications and conclusions to be drawn from audit and investigative material.
Finally, OCCIG administers the Civil Monetary Penalty program.

Office of Resource Management
ORM supports OIG by providing information resource management and systems security.
ORM also coordinates OIG's budget, procurement, telecommunications, facilities,
and human resources. In addition, ORM is the focal point for OIG's strategic
planning function and the development and implementation of performance measures
required by the Government Performance and Results Act of 1993.